Transfer on Death Deed–Danger!

There is a new deed in California, and you should avoid it – it’s called a Transfer on Death Deed. Recently created by California statute, a TOD Deed is a seemingly cheap and easy means of estate planning for real estate. These deeds allow you to easily designate a person to inherit your real estate after your death, without having to give up any control to or rights in the property before then.

The mechanism is seemingly simple. You designate a person (TOD Beneficiary) on a deed to receive your specifically described real estate after your death. Sign, notarize, and record the deed—voila! When you die, the person you named as beneficiary in the deed takes title to the property without having to go through probate. And, you don’t have to pay an attorney big bucks to set the procedure up.

But, there are a host of problems with Transfer on Death Deeds that make them bad estate planning mechanisms in almost all situations. Here are the problems:

  • TOD Deeds may only be used for certain Residential Property.
  • TOD Deeds conflict with joint tenancy and community property with right of survivorship.
  • TOD Deeds make it more likely your children will pay higher property tax after your death.
  • TOD Deeds do not allow you to name a contingent beneficiary in case your TOD Beneficiary dies before you—your property may still wind up in probate!
  • Title companies are refusing to insure clear title to your TOD Beneficiaries—What if your beneficiary wants to refinance?
  • TOD Deeds disinherit children of TOD Beneficiaries who die before you (e.g. your grandchildren)
  • With a TOD Deed, your title policy will become void at your death rather than continue in favor of your TOD Beneficiary.
  • Your TOD Beneficiaries may wind up in court if you have creditors or parties entitled to reimbursement, like Medi-Cal, or the title company refuses to insure clear title.
  • TOD Deeds may harm TOD Beneficiaries with “special needs,” including those on public assistance.

Because of these defects, the only situation in which I would consider recommending a Transfer on Death Deed over a will or a trust is the situation where: 1) You own outright a single piece of residential property and not much else; 2) You have only one loved one you want to benefit as TOD Beneficiary and no other loved ones; 3) You and the property are debt free; and 4) Your TOD Beneficiary is able to hold the property for several years without selling it or borrowing against it. Even then, the problems listed above with a Transfer on Death Deed should be considered and discussed with a knowledgeable real estate attorney.

David J. Collier is a real estate attorney in Santa Rosa, Sonoma County, California. David is responsible for this content of this Advertisement. The information in this article is not legal advice. To obtain legal advice you must discuss your unique circumstances with an attorney.